The Bangko Sentral ng Pilipinas (BSP) on Friday said it would be monitoring inflation on a month-on-month basis to determine whether it will raise or cut interest rates.
On the sidelines of the Bankers Night on Friday, BSP Governor Felipe M. Medalla said if it will decide to raise interest rates, it might happen in the next monetary policy meeting.
Medalla reiterated that a zero and a 75 basis points or a jumbo interest rate hike would not be likely.
“If inflation is still high, by the way, we’re looking now month-on-month because whatever happens because of sheer momentum, year-on-year will be high. So its really the month-on-month that we are watching,” Medalla said.
“We are still hawkish. If the results are bad, we will act. (If the) month-on-month is 1 percent (and translates) to a year-on-year of 12 (percent), we have to act. But the reason we cannot say is we could be surprised one way or the other,” he explained.
Nonetheless, raising interest rates of above 25 basis points would be possible if February rates would be higher.
However, Medalla said if the month-on-month inflation rates would fall to negative territory, the Monetary Board might not even hike interest rates in its next meeting.
“The main impetus behind inflation is not demand. What is happening is what we call second order effects. Prices are rising because previous increases influence future increases,” Medalla pointed out.
Medalla said Finance Secretary Benjamin Diokno and National Economic and Development Authority (Neda) Secretary Arsenio Balisacan were already able to convince the President to import food, such as sugar.
These non-monetary measures, he added, are expected to help cool inflation in the coming months. If these measures continue, inflation may have peaked in January 2023.
Medalla said the BSP expects inflation to fall below 4 percent by around November or December this year.
Medalla also said he expects a shift to a quarter-point move at the next monetary policy review, amid expectations for inflation to start cooling.
There may be one more increase, Medalla said at an event in Manila on Friday. A 25 basis-point move is the most likely option, he added.
While many central banks including the Federal Reserve have slowed the pace of monetary tightening to quarter-point increments, BSP has so far stuck to outsized moves to tame an unexpected surge in inflation. A downshift to 25 basis-point increment will align the BSP’s rate action with peers, some of whom have already opted to pause.
With inflation still at a 14-year high of 8.7 percent as of January, Medalla said he’s hoping to be pleasantly surprised by the consumer-price trajectory. The expectation is it for price gains to decelerate to 4 percent by November or December, he said.
Medalla said he hopes non-monetary measures will become more effective in putting a lid on price-growth. His comments follow earlier remarks by Diokno that monetary authorities have done their part, and that direct measures to address supply issues were needed to fight inflation.
Within Southeast Asia, the Philippines’ monetary path has diverged from peers such as Indonesia and Malaysia, where authorities have paused amid signs of easing inflation. Elsewhere in Asia, India is grappling with persistent price pressures, although the Reserve Bank of India has slowed its rate action to 25 basis points. With Bloomberg